Tim Harcourt*
Australia was once a protected inward looking country which despite its bountiful wealth was at the bottom of the global premiership table in terms of economic performance. Fortunately, a couple of Kelly’s, farmer Stan and his MP son Bert rallied hard in the cause for free trade. They did so because they could see what protection was doing to farmers, exporters, workers and the whole Australian community.
But whilst Kelly and son fought hard intellectually for the free trade side of the cause it took three visionaries of the labour movement to open Australia up and lock in the economic prosperity that we experience today. Bob Hawke and Paul Keating together with the ACTU’s Bill Kelty lead the reform charge and importantly managed its social and industrial impact. The float of the exchange rate and the reduction of tariffs were coupled with the Accord’s enhancements to the social wage through Medicare, superannuation, tax and education reforms. They were brave reforms and they were bold. For example the March 1991 tariff cuts were implemented in the middle of a recession. Crucially, the reforms enabled Australia to open up to Asia and take advantage of the shift in global economic power towards the Asia Pacific region. The Tyranny of Distance has truly become the Power of Proximity and the reforms enabled Australia to be in the right place at the right time. This time the lucky country made its own luck.
As Australia faces its next challenge in terms of climate change and the global financial tremors, what are the lessons to be learnt (and to whom ) about this historic period?
The first lesson, for the left, is that on the whole, trade has been good for workers as well as exporters. UNSW research shows that on average, exporters pay 60 per cent higher wages provide more job security, equal employment opportunity and better occupational health and safety (OH & S) standards than non-exporters. Exporters are more profitable and achieve higher standards of productivity and therefore can train and reward their workers better, on average, than non-exporters.
The second lesson, for the right, is that whilst it is not economically desirable to protect markets it is desirable to protect workers. An open economy does not mean we have to dispense with all notions of fairness in the labour market. It doesn’t matter if you are a cleaner, a computer programmer or even a chief economist; you need protection when negotiating with management to produce a fair and economically efficient outcome. In fact, the UNSW research also showed that export sectors that were highly efficient also were unionised and covered by collective agreements. In short, labour market deregulation is not a logical extension of trade liberalisation.
The third lesson is to avoid fads in trade policy. In 2000 as the Australian dollar plummeted below the US50 cents mark, the head of Hewlett Packard visiting Sydney for the Olympics warned that unless Australia got out of ‘old economy’ industries like mining and farming and became more ‘new economy’ like Taiwan, the Aussie dollar would be 30 cents by 2010! The chief scientist expressed similar views. After that declaration, we saw one of the biggest terms of trade increases in our history as ‘old economy’ prices increased due to the surge in demand from Asia. We also developed so-called ‘new economy’ exporters selling training, software and IT services to ‘old economy’ exporters of rocks and crops. Policy makers and the RBA did well to hold their nerve.
The final lesson is that trade policy has moved well beyond tariffs. Whilst the WTO may not be as dead as a Doha yet, and Craig Emerson’s new initiative shows an innovative way to break the dead lock, most Australian exporters are concerned about behind the border issues and seek off-shore government assistance when trying to understand new business networks and cultures particularly in emerging and frontier markets.
Another Kelly, Paul wrote recently, in reference to events at Qantas, that traditional Australian industrial relations are not compatible with us engaging in the ‘Asian century.’ On the contrary, many people of Asian descent have come to Australia to experience the fairness and freedom in the labour market here that is denied to them in their countries of origin. The Australian model allows us to trade with Asia, but to work and live according to Australian traditions of fairness and flexibility. The ‘Kelly gang’ (Stan, Bert and Paul) got it right in terms of free trade, but it took Hawke, Keating and Kelty to make it work by managing the social and economic impacts in the true Australian tradition.
*Tim Harcourt is the J.W.Nevile Fellow in Economics at the Australian School of Business UNSW and the author of The Airport Economist: www.theairporteconomist.com
